Titan Machinery Shares Are On Sale After Earnings Beat

Construction and agriculture equipment dealer Titan Machinery (NASDAQ:TITN) reported excellent third quarter earnings Thursday (Earnings Call). The company sells and rents agriculture and construction equipment sold by Case New Holland (CNH). Despite a $0.01 beat in earnings per share and a $70 million revenue beat, shares were up only 1.5% Thursday. Shares also trade well below their fifty two week highs and scream bargain when using a price to earnings multiple.

For the third quarter, Titan reported revenue of $582.1 million. This beat analysts' targeted revenue of $512.76 million. In the first three fiscal quarters, Titan has now posted revenue of $1.41 billion. Earnings per share came in at $0.66 for the third quarter, a $0.01 ahead of where analysts had forecasted. Agriculture revenue represented $503.5 million, an increase of 39.2% from last year's third quarter. Construction revenue was $94.9 million, an increase of 22.5%.

Strength in agriculture equipment was led by several factors. An earlier harvest has farmers making more money and getting their money to spend on capital purchases sooner. The yield from crops in the calendar year of 2012 is expected to be higher, due to higher commodity costs. An anticipated increase in the 2013 planted acres bodes well for a company like Titan.

The construction segment for Titan continues to show strength. Energy activity involving coal, natural gas, and oil is present in several states that have Titan dealerships. North Dakota, where Titan has a strong base, is now the second biggest oil producing state in the United States.

Here is a more detailed look at revenue:

Q3 2013

Q3 2012

Increase

Revenue

$582.1 million

$423.0 million

+37.6%

Equipment Rev.

$456.2 million

$312.3 million

+46.1%

Parts Rev.

$72.1 million

$64.5 million

+11.8%

Service Rev.

$33.4 million

$29.8 million

+11.8%

Rental Rev.

$20.5 million

$16.3 million

+25.3%

Titan announced several acquisitions during the third quarter, which is nothing new for the company that continues to expand into new states and countries in Europe. Titan bought Toner's Inc, which provides the company with three agriculture equipment dealerships in Nebraska. The acquisition of Falcon Power Inc. gives Titan two construction dealerships in the Phoenix, Arizona area. The acquisition of Falcon will give Titan its first dealerships in the state of Arizona. An acquisition of VAIT D.o.o gave Titan one agriculture dealership in Serbia.

Along with the acquisitions, Titan also announced its planned expansion into Ukraine. Titan received approval to distribute CASEIH agriculture equipment in the European country. The first dealership is expected to open in the next fiscal quarter (Quarter 4, 2013).

Titan forecasts total revenue to come in at $2.00 to $2.15 billion for fiscal 2013. The company also has forecasted earnings per share in a range of $2.10 to $2.30. The company has reported earnings per share of $1.27 in the current fiscal year. Analysts on Yahoo Finance see the company earning $0.88 in the fourth quarter, which would represent earnings of $2.15 for the fiscal year. In fiscal 2014, analysts see the company earnings $2.62 per share from $2.18 billion in revenue.

Shares of Titan are now down towards the back part of the year. After trading above $30 for several months, the company saw shares hit the $20 mark. With several acquisitions and strength being shown in both agriculture and construction, I fully expect shares of Titan to begin to trade higher going into 2013.

I recommended shares of Titan in both April and August of 2012 at prices above the current level. The drop over the last three months now puts shares on sale. Shares trade at 10.9x the expected $2.15 in 2013 earnings per share. With the current fiscal year almost over, investors should be looking at fiscal 2014 numbers. With expected earnings of $2.62, shares of Titan trade at only 9.0x forward earnings. Titan will provide 2014 guidance during their next earnings call, which could come in higher than analysts.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in TITN over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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